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Nothing moves without insurance

12 June 2012 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

It is not often one gets to use the phrases “standing ovation” and “insurance conference” in the same sentence. My latest opportunity to do so followed a hard-hitting, energetic and inspirational presentation by Joe Plumeri, the Chairman and Chief Executi

With his final “God bless you, everybody” resonating through the auditorium, the audience rose in unison to applaud Plumeri for his upbeat and insightful message. His positive sentiment was encapsulated in one of his opening comments, where he observed: “I have run almost every kind of financial services institution – and I can tell you that what the insurance sector does, collectively, has a more profound effect on society than any other [sector].” He reminded us that insurance “repairs and rebuilds communities” as evidenced post-Hurricane Katrina (when insurers chipped in $34 billion of the $50 billion clean-up bill) and in the wake of the World Trade Centre disaster (where insurers paid out around $4.4 billion).

Getting to grips with the value of insurance

Any doubt as to the value of insurance will have been dispelled by the $105 billion in insured losses suffered due to natural catastrophes through 2011. Unfortunately insurance consumers, both personal lines and corporate, remain fixated on price. Plumeri noted that while insurance brokers (and insurers) perform a function of greater value than many other professions, they are too ashamed to talk about money. “A lawyer will not even give you a cup of coffee before he tells you how much his consultation will cost,” said Plumeri. “If you say the asking price is too steep he will show you the door.”

If you want to feel good about what you do, then you must encourage greater transparency around price. The bottom line: “Price is an issue in the absence of value!” The one thing conference attendees should take home from The Insurance Conference 2012 is Plumeri’s: “Price is only an issue in the absence of value!” By extension the onslaught of regulation over the past decade is a consequence of “the absence of value”. New regulation in both the prudential and market conduct environments is a result of poor, immoral and even unethical business practice. “We should not need regulators to tell us what we need to do to do the right thing – we should take that on ourselves,” he said.

The regulatory landscape has changed radically over the past decade. To remain relevant insurance brokers must challenge the fundamentals of the industry. “Writing insurance business is no longer a case of simply placing insurance because ‘that’s what we always did’,” said Plumeri. “My thesis is that the insurance industry must transform from a transaction oriented business to one that sustains itself and encourages its clients to think about insurance more broadly than simply buying cover.”

“Insurance is the DNA of capitalism!”

There’s no better way to get a crowd of insurance professionals behind you than to tell them that their industry is the DNA of capitalism. “Without insurance nothing flies, nobody works, nothing gets built, nobody moves, nothing moves,” he enthused. “It is the only industry in the world where I can say: ‘Look out the window – do you see what’s moving – it is moving because of the insurance industry!”

21st Century insurance is about surviving the perfect storm. Today’s insurers (and insurance brokers) have to balance the regulatory demands on capital and solvency with profit, trade through continued macroeconomic uncertainty, and produce acceptable investment returns despite low interest rates and a “soft” global economic outlook. Plumeri added to the conference “Top 10” lists of insurance risks with one of his own. His top three risks included  pandemics, terrorism and climate change, issues debated frequently by the industry at present. Think back to the World Trade Centre attack, Avian and Swine flu scares and of course the $105 billion in insured natural catastrophe damages in the past year…

His risks acknowledge shifts in modern insurance trends… A decade ago nobody would have thought that piracy, cyber-security and globalisation would make it onto a list of insurance industry risks… Other threats include reputation (a strong theme emerging from the conference), the cost and availability of credit, regulation and compliance, and market capitalisation risk. The good news is there are abundant opportunities, particularly in the new emerging economies.

The future of insurance

“The golden era of insurance has not begun yet,” said Plumeri. He pointed to the global emerging middle class that should swell by two billion individuals by 2050… Africa will drive this trend thanks to 1.1 billion middle class across the continent by 2060! An insurance broker intent on success must ask the right question. Ask yourself: “How can I sustain my client’s ability to stay in business for five or 10 years time?” And ask the client: “What resilient or sustainability model do you have in place to ensure, that in a world full of danger, you will still be in business five or 10 years from now?”

The Willis Group is a leading global insurance broker that delivers insurance, reinsurance, risk management, financial and human resource consulting, and actuarial services to corporations, public entities and institutions around the world. The company can trace its history to 1828 making it the oldest surviving insurance broker in the world! (For more information, visit http://www.willis.com/).

Editor’s thoughts: A lot has been written about the negative consequences of the direct insurers’ attacks on the value of financial advice. Their negative stance has caused untold damage to the industry… Unfortunately short-term insurance brokers who buy into the “price before value” concept risk damaging the industry too. Do stakeholders in the domestic insurance industry do enough to emphasize the value in the product they develop and distribute? Add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Balanced view, 13 Jun 2012
What a biased view. Direct insurance is here to stay and for the educated man in the street who does his homework why not go direct.. There will always be place for a broker who educates and provides an excellent service to his clients. What kind of reasoning is it to quote one example (with minimal detail) and then make a blanket inference that direct insurers dont pay. Any insurer who unfairly and incorrectly declines a claim or offers wrongly calculated settlements faces the risk of bad press which could cost them far more than one claim. Not to mention the Ombudsman ruling against the insurer. Why dont brokers spend more money and time marketing themselves and raising their service levels instead of moaning about direct insurers?
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Added by Irene, 13 Jun 2012
“Price is an issue in the absence of value!” - Never truer words spoken! However, it is also fundamentally wrong to assume Price = Value. Even when a lot of money is thrown at a problem or something is expensive, does not mean the problem is solved efficiently or that you get Quality/Value - our education & health systems, ineffective compliance procedures and "fashion" items are prime examples of this misconception. The insurance industry suffers the same risk as any other. By now, most people fully understand advice is not free - whether payable by commission or a direct fee, but everybody is entitled to expect Professionalism and Value for the amount they pay in the process!
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Added by Kenny Rajah, 12 Jun 2012
So true- we do not drive, we do not open the doors of the business, we do not give financial advice, we do not diagnose, we do not dispense legal advice, without first being sure that we are covered by insurance for any mishaps-whether by us or another. This mesage will be the basis of showing the agents in my call centre how important their job is and that they are part of the wheels that turn capitalism.
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Added by Jacky, 12 Jun 2012
This sounds like a fascinating speech. Please be kind and send me a full copy of Mr. Plumeri's speech.
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Added by PhilC, 12 Jun 2012
People do not see the problem in dealing with Dir3ct Insurers until it is too late. A client's Brother in law insured his House and Contents via one of the Direct Insurers who advertise how much they will save you. I was asked to quote, but was "too expensive". I warned of potential problems, but was told he had had his car there, and their claim had been handled "fine". The Insurer sent out valuators, who valued the property and contents at R6,000,000. The house was subsequently gutted in a fire - burnt to the ground - 100% destroyed. NOW - Insurers are saying that the sum insured was inadequate, and are only prepared to offer R4,000,000. FIRSTLY - I query how they can say there is under-insurance when THEY valued it (but they do say it is up to the client to ensure sums insured are adequate) BUT - Insurance 101 - there is NO average applicable in the case of a total loss! Insurers pay out the sum insured, as Average is "Automatic", in that you are in for the uninsured portion. This is just their way of ducking paying BIG claims - as per tpr3evious Noseweek articles where exactly the same happened. The problem is - one only finds the flaws when the brown stuff has hit the oscillating object!
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Added by Simon Hebron, 12 Jun 2012
Direct insurers are mearly focusing on price and thus creating the wrong perception within the insurance sector. There claim that it is cheaper to cut out the middleman is nonsense. Does the consumer understand the amount of money spent on generating leads for the direct insurer? I think not. It however amazes me that the industry does not fight back. It seems to me that the Independant brokers are being left out to dry. Why does the industry not publicise the value that a broker brings to the process of buying an insurance product? Too much focus is being put on the commission we earn. In my mind however "The broker is back".
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Added by Cynical Simon., 12 Jun 2012
Very,very true.We as Brokers need our industry body to take the lead in changing our own approach as well as the perception of the beholders out there on the value issue. I for one am prepatred to give my portion in embarking on this new adventurous journey.
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